World Currencies

Top Answer

The **time value of money** is based on the premise that an
investor prefers to receive a payment of a fixed amount of money
today, rather than an equal amount in the future, all else being
equal. In particular, if one received the payment today, one can
then earn interest on the money until that specified future date.
All of the standard calculations are based on the most basic
formula, the present value of a future sum, "discounted" to the
present. For example, a sum of *FV* to be received in one year
is discounted (at the appropriate rate of *r*) to give a sum
of *PV* at present. Some standard calculations based on the
time value of money are: : **Present Value** (PV) of an amount
that will be received in the future. : **Present Value of a
Annuity** (PVA) is the present value of a stream of
(equally-sized) future payments, such as a mortgage. : **Present
Value of a Perpetuity** is the value of a regular stream of
payments that lasts "forever", or at least indefinitely. :
**Future Value** (FV) of an amount invested (such as in a
deposit account) now at a given rate of interest. : **Future Value
of an Annuity** (FVA) is the future value of a stream of payments
(annuity), assuming the payments are invested at a given rate of
interest. The **time value of money** is based on the premise
that an investor prefers to receive a payment of a fixed amount of
money today, rather than an equal amount in the future, all else
being equal. In particular, if one received the payment today, one
can then earn interest on the money until that specified future
date. All of the standard calculations are based on the most basic
formula, the present value of a future sum, "discounted" to the
present. For example, a sum of *FV* to be received in one year
is discounted (at the appropriate rate of *r*) to give a sum
of *PV* at present. Some standard calculations based on the
time value of money are: : **Present Value** (PV) of an amount
that will be received in the future. : **Present Value of a
Annuity** (PVA) is the present value of a stream of
(equally-sized) future payments, such as a mortgage. : **Present
Value of a Perpetuity** is the value of a regular stream of
payments that lasts "forever", or at least indefinitely. :
**Future Value** (FV) of an amount invested (such as in a
deposit account) now at a given rate of interest. : **Future Value
of an Annuity** (FVA) is the future value of a stream of payments
(annuity), assuming the payments are invested at a given rate of
interest.

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